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Linkage Shows Promise for Climate Change Policy

November 20, 2013

By Doug Gavel, HKS Communications

The proliferation of direct and indirect linkages between government carbon trading programs may hold great promise for constructing realistic and sustainable policy solutions to combat global climate change. That is one conclusion in a new Harvard Kennedy School (HKS) Faculty Research Working Paper co-authored by Robert Stavins, Albert Pratt Professor of Business and Government at HKS, and director of the Harvard Project on Climate Agreements.

Linkages have grown in number and dimension over the past decade, Stavins states, offering up a new and potentially effective bottom-up approach to confronting the serious challenge posed by climate change.
"Linkage is a multi-faceted policy decision that can be used by political jurisdictions to achieve a variety of objectives," the authors write. The authors specify two important findings from their research:

There exists a significant revealed preference for linking emissions trading systems; this proliferation of linkages implies that for many nations the expected benefits of linkage outweigh expected costs; and

A set of factors—ranging from geographic proximity to integrity of emissions reductions—have influenced the decision to link. Some effects of linkage, such as loss of control over domestic carbon policies, do not appear to have had much impact on real-world decisions about linking.

While linkage might not be a complete answer to the needs for an effective international climate policy regime, Stavins argues, it could prove to be an important component in any future international climate policy architecture.
"Because a global offset market is not emerging, the possibility of achieving near-term cost savings through a system of indirect linkages seems unlikely. Furthermore, recent delinking by New Jersey and Australia demonstrates that linkages can easily be undone, implying that linkages may not survive changes in domestic political support," the authors write. "However, strong incentives for linking are likely to continue to produce direct connections among some regional, national, and sub-national cap-and-trade systems."
The paper, titled "Linkage of Greenhouse Gas Emissions Trading Systems: Learning from Experience" is posted on the Harvard Kennedy School Faculty Research Working Papers website.Robert N. Stavins is Albert Pratt Professor of Business and Government and director of the Harvard Environmental Economics Program. He is a Research Associate at the National Bureau of Economic Research, a University Fellow of Resources for the Future, former Chair of the U.S. Environmental Protection Agency’s Environmental Economics Advisory Board. His research has examined diverse areas of environmental economics and policy and has appeared in a variety of economics, law, and policy journals, as well as several books.